Q&A with activist investor David Winters

May 18, 2014
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David Winters, CEO of Wintergreen Advisers, pauses during a TV appearance on the sidelines of the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, U.S., on Thursday, July 12, 2012. / Scott Eells, Bloomberg

by Maria Bartiromo, USATODAY

by Maria Bartiromo, USATODAY

Activist investors have become the new normal for business. Carl Icahn has pushed Apple to pay out more money to shareholders through dividends and stock buybacks. Bill Ackman has pushed Botox maker Allergan to merge with another biotech company, Valeant, and Allergan is fiercely resisting.

The latest target of an activist is one of the most widely held companies in the world and represents a pushback against one of the best investors in the world: Coca-Cola and its biggest shareholder, Warren Buffet.

The push comes from David Winters, founder and CEO of Wintergreen Advisers, which holds 2.5 million Coca-Cola shares. Winters opposes the hefty pay packages for the top executives at Coca-Cola. He says the plan pays out excessive salaries to top executives by issuing new stock, and that new stock ultimately dilutes existing shareholders, including Winters.

Winters first broke his silence on my show "Opening Bell" and then through a letter to Buffett, Coca-Cola's largest shareholder. It turned out Buffet also had a problem with the plan but chose not to say anything because he didn't want the public to sense a rift between him and Coca-Cola management.

Coca-Cola defends the compensation plan, saying it is fine. But Winters says the company's lack of answers is a bigger problem than he first thought - it's now a problem with the company's governance - and that he has lost confidence in its CEO, Muhtar Kent. Our interview follows, edited for clarity and length.

Question: You have been an investor in Coca-Cola for five years. What changed?

Answer: We discovered in March of this year, on page 86 of the proxy, that there was this huge amount of dilution of stock of the existing shareholders because of new stock issuance so they could pay huge compensation to the top managers. It was such a huge amount of money, some $24 billion. And we decided it was in our clients' fiduciary interest that we write a letter to the company objecting. So we did that and sent a copy to Warren Buffett. And very quickly we got a response from the company that said they would not withdraw the plan and they support the plan. They said the dilution was not excessive. But it was an enormous amount of money for 5% of the employees to be paid for four years. We ended up writing another letter to Buffett. And we felt this was an attempt to pick the pockets of many Americans, because Coke is so widely owned. Not only our clients, but teachers and electricians, and people saving for retirement. And we were just shocked by their attitude and the amount of money that was involved.

Q: Buffet, one of the greatest investors of all time, said that he also actually agreed with you that it was excessive. But he didn't want to go against management publicly. What did you think of that?

A: Buffet was silent for four weeks after we wrote the first letter. And we thought it was odd because everything that he had written over the years (and said publicly) was that shareholders should stand up for their rights and that excessive compensation shouldn't be tolerated.

And when Buffett came out publicly and said that he had abstained but was opposed to the plan, it just didn't make sense. By not publicly saying anything, investors didn't know his position. So we were just stunned with Buffett. I think so many people were shocked by this because all this money was coming out of shareholders' pockets. I think what's really dawned on people is the way that Coke and Berkshire have behaved here and it has really damaged the public's confidence in the markets. And I think that is one of the very serious things that's come out of all this.

Q: Once Buffet expressed disappointment with the plan, did they change it?

A: There were some rumblings that there might be a new plan, an alteration. But absolutely nothing's happened. There were some differences in the 2014 plan, compared to the '08 plan. So far, Coca-Cola, even though less than 50% of the shareholders voted in favor of this plan, has done nothing to change it. And so every day that goes by, we think the credibility of Coca-Cola management and the board diminishes. They don't have shareholder support. And they were less than straightforward because it was never disclosed that Buffett opposed this.

Q: The company has given me a statement, that the 2014 equity plan incorporates a number of best practice and shareholder-friendly provisions such as no repricing of stock options, no liberal share capping, double-trigger change in control vesting.

A: It's mumbo jumbo. We think that Coke is in denial; that they have pushed through a plan that's not shareholder-friendly; that their largest shareholder effectively secretly opposed the plan. They didn't listen to him. He called it excessive. So we find the whole thing a gigantic corporate scandal. You've heard me call it Cokegate.

Q: You believe this is more than a compensation plan. This is about corporate governance?

A: Yes. And one of the commissioners of the Securities and Exchange Commission gave a speech where he said, "The shareholders are boss. And companies are run for the shareholders." And Coca-Cola's behavior has clearly been the opposite, where they feel that it's about compensating management. These are serious issues with regards to how the board is being managed, the communications with shareholders and the candor. And it begs the question: How is Coca-Cola really being managed? Is it for the benefit of the shareholders or is it for the benefit of management?

Q: So how far are you willing to go? Are you calling for new management?

A: Well, Muhtar Kent has been chairman and CEO and all this has happened on his watch. And he has not only championed an excessive plan, he has also apparently ignored not only the largest shareholder but many other shareholders, in terms of clarity of communication. So Muhtar doesn't have a lot of credibility at this point to continue to run Coca-Cola. We love the Coca-Cola company. It's a very simple business. It's been around forever. It's loved around the world. Our sense is that if the company was run for the shareholders, that a lot of value could be unlocked here. And that everything that we can tell from the last seven or eight weeks is that we had no idea that the Coca-Cola company was being managed this way. So hopefully as an end result of all of this is that there'll be enough shareholder disdain for what's happened that there'll be significant changes at the Coca-Cola company so the company is run for the benefit of all shareholders, not for the benefit of the top 5% of employees.

Q: Warren Buffet has been sort of the fighter for the little guy so I'm surprised he did not initially voice his opposition even though he was against it.

A: We're as baffled as you are. And we think if Coca-Cola is fixed and run for the shareholders, it could be a very good investment from here on. That's what we're hopeful about. And we're hopeful that confidence in the markets is restored. All we need to know that it's not sort of cronyism that dictates how our companies are run, but the best practices.

Maria Bartiromo is anchor and Global Markets Editor at Fox Business Network and can be seen every day on "Opening Bell" at 9 a.m. ET on FBN and every Sunday at 10 a.m. ET on "Sunday Morning Futures" on the Fox News Channel.